Public and private unions

What's the difference exactly?

SOMETHING about public employees' unions certainly feels different from private-industry unions, as my colleague points out. But I'm not sure I follow the way he draws the distinction. In private industry, my colleague thinks, unions make sense because they compensate for uneven bargaining power between owners and workers in the struggle over how to split up profits. Public-sector unions, he thinks,

...don't work like this. They aren't bargaining against capitalists for a fair cut of the cooperative surplus. They're bargaining against everybody who pays taxes and/or benefits from government spending. The question of distribution in democratic politics isn't about splitting up jointly-produced profits. It's about interest groups fighting to grab a bigger share of government revenue while sticking competing groups with the tax bill.

The thing is, if one were a hardcore neo-classical type, one might argue that private-sector unions are merely bargaining against everyone who buys the products they produce, in an effort to drive up prices. Unions are trying to set industry-wide uniform wages, not argue with the owners of a particular firm about how to divide that firm's profits based on this year's results. That would result in different wages for workers at different firms, which is one thing unions generally don't want. In a platonic-idealist capitalist world where competition is always driving down prices and profits, and where firms have to compete on efficiency, you'd think the only way unions could make more money for workers is by raising prices for everyone.

In fact, the world isn't ideal, there's a whole lot of wiggle room for firms to increase profits by driving down wages, and, as my colleague writes, private-sector unions provide workers with a counterweight to management power in bargaining over compensation. And the evidence is very clear that, while they may also lead to reduced investment, unions provide a wage premium for their workers in the firms and industries where they operate. If you had a situation in which the private sector was largely unionised and the public sector wasn't, you'd expect to see private-sector workers making more than public-sector ones for similar jobs.

In fact, however, we don't have such a world. We have a world in which private-sector unions have shriveled while public-sector ones have grown. And I think it's pretty clear how this came about. Back in the 1940s and 1950s, the standard jobs that provided decent salaries and job security for the working and middle class were all pretty heavily unionised, whether private- or public-sector. Auto workers were unionised, police officers were unionised, newspaper reporters were unionised, postal workers were unionised. In my family, one branch was in the (private) ladies' garment workers' union, the other branch was in the (public) teachers' union. (Then there was my Great-aunt Marcia, who was in the Screen Cartoonists' Guild, which Walt Disney claimed was a Stalinist front group taking orders directly from Moscow. She used to draw a mean Popeye.) In that generation, people who worked in government jobs would have reacted angrily to the idea that they didn't have the right to organise and demand better wages the same way their private counterparts did.

Private-sector unionisation began to decline in the 1970s for a reason: private industry had an incentive to seek a non-unionised labour force and to break union control wherever possible, in order to increase profitability. So the auto and steel industries shifted factories to right-to-work states, leading to the tautological result trumpeted in papers like this one that unionised areas have lower rates of investment than non-unionised ones. The government doesn't have such a clear incentive to seek low-cost non-unionised labour. Moreover, a lot of governing tasks can't be outsourced to cheap non-union locales; you can't move an elementary school to Arkansas because the unionised teachers in New Jersey are too expensive. So government unionisation has risen from 23% in 1973 to 36% today, while private-sector unionisation has declined from 24% in 1973 to 7% today. In this environment, it's quixotic to argue that private-sector unions (which are withering) are legitimate, while public-sector ones aren't. It might be interesting to consider the merits of an economy with 50% private-sector unionisation and no public-sector unionisation at all, but that's not an economy we could conceivably get at this point.

I love this discussion because it really highlights how easy it is to move the Overton Window. You've got our libertarian blogger and many reliably-conservative commenters expressing thoughts in the form of "Sure, private-sector unions are perfectly legitimate and serve a useful and vital function, but public-sector unions..."

I'm not sure what M.S.'s overall point is supposed to be, but I would have liked him go another way and test this dynamic. Say, suggest something like, "Public sector union demands that defined benefit contributions continue to be paid to the great-grandchildren of union members who died before 1957 are not justifiable. Cash-strapped governments need to limit benefits to three generations."

Then wait for the chorus of "Here, here. Three generations indeed! In my conservative fury, may I suggest we limit it to a mere two generations!"

speckledhen wrote: Feb 10th 2011 7:37 GMT
"I love this discussion because it really highlights how easy it is to move the Overton Window. You've got our libertarian blogger and many reliably-conservative commenters expressing thoughts in the form of 'Sure, private-sector unions are perfectly legitimate and serve a useful and vital function, but public-sector unions...'"

I don't see why you would be surprised, unless you have a very skewed assumption that being conservative automatically means you are against the existence of unions.

I am conservative, and generally disagree with the Democratic Party on a host of issues. However, this does not mean that I would be happy to see the Democratic Party go defunct. The party, whether I agree with its positions or not, serves a valuable public purpose, and I personally would hate to live in a nation that ran a one-party system.

Similarly, I disagree with a host of agenda items that unions constantly lobby for, and my general opinion of unions is currently rather low, because I mostly see them as sowing the seeds of their own near-destruction (for example, look at the auto industry prior to bankruptcy). However, that does not mean that I favor abolishing private-sector unions -- at one point in history they served a valuable function, and they have the potential to serve a valuable function in the future. Unfortunately, most unions are myopically focused on devouring their respective golden-geese, or at the very least trying to parasitically suck as much blood from their employer as possible without killing it.

Spot on. Combine that with the nice chunk that the union removes from your paycheck and the constant hostility to management that the union encourages in the interest of it's own survival. Which is usually reciprocated, making for a paranoid work environment.

The job seemed to be tailor-made for hostile, vindictive, lazy clock-punchers. If you had any energy or ambition you got out of there ASAP. As usual, YMMV, but that was my experience, and it didn't endear me to a unionized workplace.

Another key difference is that unions work hard to elect their supporters - eg. a school board can easily end up filled with teachers and their immediate relatives. Thus, the public sector workers end up negotiating with themselves. Theft by another name.

The difference - isn't it obvious? - is that through politics, public sector unions can manipulate politicians, who ultimately approve negotiations. This is a conflict on interest on the part of politicians that doesn't exist in business. Politicians have in incentive to sell out the voters/taxpayers and buy votes - and campaign contributions - from union members.

A further thought after reading some comments. In America, a big problem for unions is that many people, though I can speak only for my general age group, don't really like the idea of lifetime employment anymore. We like having the freedom to move between jobs and seek out a better deal.

Unions, public or private, seek the opposite. They fight for lifetime employment with one company and particularly for benefits for someone that stays in the same job or narrow category of jobs rather than filling a variety of positions and gaining a variety of skillsets. In the private sector the reality of this form of labor mobility made maintaining strong unions difficult. In the public sector, and especially in states and localities (I believe unionization is much weaker for the feds, though NY has particularly strong unions so there may be bias due to my limited info), the nature of the what they are encourages them to seek a fairly stable workforce. The State of New York has little incentive to consider the needs of an employee who plans to move to another state. Private industry can accomodate this rather better, many companies have plants in different areas and have less incentives to maximize the local workforce or to seek to restrict employee's mobility across jurisdictions.

While off topic, this leads me back to how I'd like to see unions evolve. We really do need organizations that will help workers in the modern labor market but the need is to help with labor mobility and retraining as needed skills change and as someone wants to develop in their career. Modern unions seem to continue to focus on making life as good as possible for someone in a narrow job task and to enhance skills in a narrowly defined trade. This is no longer what either workers or employers desire, they want flexibility but with a degree of security to allow them to weather both the ups and downs that come with this flexibility. Unions today however seek to make things inflexible to provide security rather than finding ways to add security to a changing environment. If they instead focused on helping people find and move for work, retraining members in new skills, providing apprenticeships and other ways of gaining skills to new members, an additional layer of safety net for when members are between jobs, and help with identifying upwardly mobile career paths for their members unions would be useful to both employees as a way to upgrade their skills and find employment and for employers as a source of skilled labor and a way to spread safety net type benefits across an industry rather than on a company by company basis.

I have no idea if this is even possible with US labor laws, but the American union, especially public, seems to be designed for a workforce few people really want to be part of. Especially among the kind of educated workforce government relies on, few of us really desire the kind of lifetime employment in one job unions are designed to protect. A lot of us like the shorter hours and more vacation and are willing to trade pay for this, but we aren't very happy with the difficulty of mobility or the highly regulated career paths (though this is party the result of antiquated civil service laws, some of which are in bad need of reform).

Consider that all of the usual suspects here, whatever our general political or economic philosophies, are weighing in against MS's position. It's not like he gets this kind of universal disagreement (or agreement) from us for his writings on other issues. So could it not just be that he has missed on this one?

Public sector is full of questions.
1. you have many many who give all to make things work well
2. you have many who give very little to make things work well.
3. pay is usually far less for same work in private industry. Usually. Hours are usually shorter in public sector. So that is a wash.
4. There are no stock options, no lucrative matching fund contributions. Yes, there is more security in harsh times, and there is a defined benefit plan but generally that is the tradeoff for lower salaries and less economic options.
5. Constantly changing government requires much of the government to do more with less staffing. So chances are many things will be done poorly, unless someone stays late unofficially to get things done.
6. Lawyers, Lawsuits, and new laws are in large part responsible for the current morass of government. New regulations are a tax on the economy. The cost of Independent Environmental Impact Reviews can cost more than a project completed.
7. The cost of baby boomers medical far far outstrips any concern of unionized public employees. One heart bypass eats more dollars than most public servant for 2 years wages.

The current California budget of about 90 billion has a tool on LA times to balance the budget. and for each forced day off a month without pay the state saves 400 million a year. 400 million * 22 that is 8.8 billion. or only 10% of the entire mess. Education and Healthcare are the big 80 billion dollar gorrilla or 40 billion pound gorilla in that room.

People are arguing about irrelevant details with this argument. Yes there is bizarre grand abuses of the taxpayer with unions in civil service jobs. But don't fool yourself that private sector is so perfect. The same unethical empire building exists in all large organizations. Enron didn't happen overnight, Arther Anderson, AIG, The abuses are everywhere but the people getting money and not working are the biggest drain on the systems, not the civil servant employees. Cut the waste out and you might save 1 to 3 billion in California. Well that still leaves California with a 20 billion shortfall.

HFG - You asked whether public sector employees might get stock options like some private sector employees. I'm fairly certain they don't, and that your question was meant rhetorically. But it got me thinking about ways income-generating public assets could be monetized to meet the underfunded municipal pension obligations. Not stock options or share grants, per se, but perhaps unredeemable bonds paying a coupon based on the profitability of stadiums, airports, transit systems, etc. in lieu of pensions might align more interests than current approaches.

(In fairness, I have come to realize that when many people here read they see caricatures rather than words, so it is no longer surprising to me that they think I am doing something other than what I am actually doing.)

With public sector unions there is no one "minding the store". There is no incentive for an elected official to "say no" to the wishes of others especially when using "others" money. If they were a store owner who faced bankruptcy then there is incentive to say no.

"The government doesn't have such a clear incentive to seek low-cost non-unionised labour."

Of course not. The incentive points in the other direction for public sector unions. The party in control of government has every incentive to reward union support by providing excessive pay and benefits increases. The symbiotic relationship between the public sector unions and the Democrat party is evidence of this. The party gets union votes in exchange for generous pay and benefits packages for the rank and file.

Of course, unlike a private sector employer, which cannot afford to ignore the impact a collective bargaining agreement would have on its competitiveness, the government has no competitors, cannot go out of business, and so can be as generous as is necessary to secure the desired amount of support from the public sector union for the next election.

So, Matt Steinglass, at the risk of angering your relatives in the public sector unions, the absence of market-based competitive discipline on government labor negotiations means that public sector unions should not have the right to collective bargaining, at least not to the same extent available to private sector unions.

FDR understood this when he said "All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service." Why was he wrong?

There is a big difference between private-sector unions bargaining with management and public-sector unions bargaining with government. For the government "bosses", it isn't their money! Why shouldn't they give the unions lush salaries and pensions, especially when they are also often buying votes at the same time, and somebody else has to pay for both?

It seems that you simply refuse to accept me at my word when I say that my goal is not to defend M.S. but to defend the notion that we should criticize people based on what they are actually saying and not based on something that they haven't said.

On this particular issue I don't have a strong opinion either way on this issue, and since most of the criticisms seem to be reasonable ones that are based on points what M.S. actually said I have no problem with them.

The difference is that the public can choose whether or not to buy the products of the private sector unions, but not whether to buy those of the public ones, except by moving somewhere else.

And the public ones by political action seriously affect who employs them, as though private unions were helping to elect members of the board of directors of their companies. If that were the case, they would likely do as well as public unions.

The author suggests that private and public-sector unions are alike because public-sector unions bargain "against everybody who pays taxes and/or benefits from government spending" just as private-sector unions bargain "against everyone who buys the products they produce."

This ignores the ease by which product buyers can substitute other goods in place of the more expensive. Moreover, the authors gilds the fact that 'buyers' cannot opt out their government 'purchases' except by votes opposed by the very unions who benefit from higher pay.